Updates on Merger Control in Indonesia
On 3 October 2019, the Business Competition Supervisory Commission (Komisi Pengawas Persaingan Usaha or “KPPU”) enacted KPPU Regulation No. 3 of 2019 (“KPPU Regulation 3/2019”) on the Assessments of Mergers or Consolidation of Business Entities or Acquisition of Company Shares (“M&A Transaction”) that may result in Monopolistic and/or Unfair Business Competition Practices. This KPPU Regulation 3/2019 was issued to clarify and update the procedure of mandatory post-notification for M&A transaction by business actors in and outside of Indonesia, which is known as Merger Control.
The KPPU Regulation 3/2019 revokes the previous KPPU Regulation Number 13 Year 2010 on Guidelines for the Implementation of Merger or Consolidation of Business Entities and Acquisition of Companies that may Result in Monopolistic and/or Unfair Business Competition, lastly amended with KPPU Regulation No. 2 of 2013.
To this end, the enactment of KPPU Regulation 3/2019 has introduced the following notable changes for Merger Control criteria:
KPPU Regulation 3/2019 expands the scope of acquisition by including the asset-based acquisition as an object for notification filing for Merger Control. Article 5 of KPPU Regulation 3/2019 mandates that an asset-based acquisition is subject to the notification obligation in the event that such acquisition resulting transfer of control of those assets and/or increase the ability of the acquiring business entity to control a particular market. Please note that the asset-based acquisition transaction must also satisfy the value threshold entrenched of IDR 2.5 trillion in asset value or IDR 5 trillion in revenue value of the business entity (“Value Threshold”). Therefore, an asset-based acquisition must be notified within 30 days to the KPPU after the effective date of the transaction with condition that the asset value or the sales value of the business entity meets the Value Threshold.
The calculation of assets and sales for Value Threshold includes assets and sales both in Indonesia and abroad
In determining whether an M&A Transaction should satisfy the Value Threshold or not, the scope of calculation of the asset and revenue would include all groups of a company from the top, i.e. ultimate beneficiary of the business entity to the lowest subsidiary of the business entity. It must be noted that under the previous KPPU Regulation, a territorial limitation was imposed which the calculation only limits assets and sales that are located and conducted within the territory of Indonesia. Such territorial limitation is absent in the subsequent KPPU Regulation 3/2019.
Due to the absence of territorial limitation in KPPU Regulation 3/2019, it can be reasonably inferred that the calculation of assets and sales for Value Threshold would encapsulate assets located and sales conducted abroad. This can be seen from the notification form format as attached in KPPU Regulation 3/2019. The notification form requests the business entity to submit the financial reports of the ultimate beneficiary of the business entity to the lowest subsidiary. If the financial statement is in foreign currency, such financial statement must be converted into Rupiah currency based on Bank Indonesia’s middle value exchange rate on the date the financial statement is made.
As such, the enactment of the KPPU Regulation 3/2019 has effectively changed the territorial limitation of the assets from being confined strictly to assets within Indonesia to a global threshold.
M&A transactions outside of the territory of Indonesia
With regard to M&A transactions conducted outside the territory of Indonesia, the enactment of KPPU Regulation 3/2019 has introduced a lower threshold compared to the previous KPPU Regulation. Under the previous regime, M&A transactions conducted outside the territory of Indonesia by foreign parties were not required to notify the KPPU in the event that only one foreign party has assets or conducts sales in Indonesia through its subsidiary/affiliated company and such M&A transaction does not have an impact to the Indonesian market.
While under KPPU Regulation 3/2019, an M&A transaction conducted abroad is required to notify KPPU if the M&A transaction has met the Value Threshold and one or more parties to the M&A transaction carries out business or sales activity in Indonesia.
This change causes the business entity to notify KPPU of any share-based or asset-based acquisition conducted abroad if one of the parties in the M&A transaction has assets or conducts sales in Indonesia even though there might be no impact towards the Indonesian market.
Submission of supporting documents for notification
Under KPPU Regulation 3/2019, business entities are now required to submit, at the minimum, the following supporting documents for notification:
- audited financial statements for the last three years;
- structure of business actors’ scheme before and after the closing of the M&A transactions;
- the amendment of the articles of association before and after the closing of the M&A transactions;
- company profile, which at the minimum contains the information of the shareholding structure, composition of the board of directors and board of commissioner, list of products produced along with the description thereof, and product coverage;
- summary of the M&A transaction that, at the minimum, encompass the effective date of the M&A transaction, the value of the M&A transactions, and the M&A transaction agreement;
- the parties’ implementing business plan after the conclusion of the M&A transaction;
- an analysis of the impact of the transaction that, at the minimum, contains the parties’ estimated market shares, the affected market, and the benefit resulting from the M&A transactions for the parties.
Additional aspects of the post-notification assessment
Following the submission of the notification by business entity, KPPU will conduct an assessment towards M&A transactions that may result in monopolistic practices and/or unfair business competition. KPPU Regulation 3/2019 introduced additional aspects that KPPU may asses to determine the potentiality of any monopolistic practices and/or unfair business competition resulting from an M&A transaction. Such aspects are:
- policy that strengthens competitiveness and national industry;
- technological development and innovation;
- protection of small and medium businesses;
- impact towards labor; and/or
- implementation of laws and regulations.
The new KPPU Regulation 3/2019 has introduced a number of changes that evinced a stricter framework for M&A transaction. These changes exhibit the intention of the KPPU to control any M&A transactions that will affect the Indonesian market. KPPU Regulation 3/2019 has effectively expanded the scope of M&A transactions subject to the obligation to notify and establish a more stringent timeframe; however, there are unclear provisions that were simultaneously introduced, especially regarding assets acquisition and M&A transactions conducted by foreign parties. Nonetheless, KPPU opens and welcomes consultations by business entities regarding the notification obligation prior to the M&A transaction.
This alert is for general information only and is not a substitute for legal advice.